A project has the following estimated data: price = $44 per unit; variable costs

Question

A project has the following estimated data: price = $44 per unit; variable costs = $30 per unit; fixed costs = $17,500; required return = 12 percent; initial investment = $35,000; life = five years.

Ignoring the effect of taxes, what is the accounting break-even quantity? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the financial break-even quantity? (Round your answer to 2 decimal places. (e.g., 32.16))

What is the degree of operating leverage at the financial break-even level of output? (Round your answer to 3 decimal places. (e.g., 32.161))

A project has the following estimated data: price = $44 per unit; variable costs = $30 per unit; fixed costs = $17,500; required return = 12 percent; initial investment = $35,000; life = five years.

Explanation / Answer

Investment            35,000.00 Return 12% Return required            4,200.00 Investment            35,000.00 Life in years                     5.00 Depreciation(35000/5)            7,000.00 Selling price per unit                  44.00 Variable costs per unit                  30.00 Contribution per unit                  14.00 Fixed Costs          17,500.00 Accounting BEP = Fixed costs+Depr/Cont per unit Accounting BEP = 17500+7000/14 Accounting BEP = 1,750 Units Cash BEP = Fixed costs/Cont per unit Cash BEP = 17500/14 Cash BEP = 1,250 Units Financial Break even Quantity = Fixed costs+Depr + Return/Cont per unit Finacial BEP = (17500+7000 + 4200)/14 Finacial BEP = 2050 Units Contribution @14 for 2050 Units          28,700.00 Fixed Costs          17,500.00 Depreciation            7,000.00 EBIT            4,200.00 DOL= Cont/EBIT DOL= 28700/4200 DOL= 6.83

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